Indian Stock Market

Shriram EPC Ltd IPO

Registered Office Address No. 5, T.V. Street, Chetput, Chennai 600031, Tamil Nadu
Phone 91-44-28361817 Fax 91-44-28363518
Email investors@shriramepc.com Website http://www.shriramepc.com
Issue Open 29/01/2008 Issue Close 01/02/2008
Issue Size 50,00,000 Equity Shares Issue Type Book Building
Face Value Rs.10/- Price Range Rs.290/- Rs.330/-
Tick Size Re.1/- Market Lot 20
Minimum Order Qty 20 Listing Stock Exchange Mumbai, NSE
Registrar To The Issue Cameo Corporate Services Ltd
Book Running Lead Managers Kotak Mahindra Capital Company Ltd, ICICI Securities Ltd.
Co-Book Running Lead Manager Motilal Oswal Investment Advisors Pvt. Ltd.
Analysis

Company Background:

* Shriram EPC Limited (SEPC) was incorporated on July 2000, for the purpose of carrying on the business of engineering, procurement and construction.
* SEPC is headquartered in Chennai, Tamil Nadu, with other offices in Mumbai, New Delhi, Kolkata and Beijing, and WTG and cooling tower factories in Puducherry, Chennai and Umbergaon (Gujarat).
* SEPC’s business is divided into two segments -
1. Engineering, procurement and construction (EPC) projects.
2. Development, sale and maintenance of wind turbine generator (WTGs) – SEPC started this business from FY 07.
* SEPC’s EPC business model provide project management services for renewable energy, process & metallurgical plants and municipal services sector projects throughout India.
* The WTG business is engaged in developing, manufacturing, erecting and commissioning 250 KW WTGs, and is currently developing megawatt-class WTGs through Leitner Shriram Manufacturing Limited (“Leitner Shriram”), an associate company.
* SEPC derived 77.49% revenue from EPC business and 22.51% revenue from WTG business in FY 07. For half year ended Sept 07, it derived 53.58% revenue from EPC business and 46.42% revenue from WTG business.
* SEPC have investments in associate companies engaged in the manufacture of WTGs, renewable power generation and manufacture of metallurgical coke, namely Leitner Shriram Manufacturing Limited, Orient Green Power Limited and Ennore Coke Limited.
* SEPC’s client list include Madras Aluminum company Ltd, Vedanta Aluminum Ltd, Grasim Industries Ltd, JSW Steel Ltd, SAIL, Gujarat Water Supply and Sewerage Board, BHEL, Ahmedabad Urban development authority to name a few. Currently, SEPC is executing one gas cleaning project in Zambia for Konkola Copper Mines plc.
* SEPC have received the ISO 9001:2000 certification for the quality management system that it uses in the design and construction of WTGs.
* Post issue promoter and promoter’s group shareholding will reduce to 88.34% from the current ownership of 100%.

Objects of the Issue:

* To invest in the company’s subsidiary and associate companies.
* To fund expenditure for general corporate purposes.
* To achieve benefits of listing on stock exchanges.

Strengths:

* SEPC has got strong consolidated order book position which stands at Rs. 2,279.18 crore as on December 31, 2007.
* The Net Income of the company has increased at a CAGR of 88.99% to Rs. 295.72 crore in FY 07 from Rs. 23.18 crore in FY 03. The Net income for 6 months ended September 07, stands at Rs. 222.48crore.
* The Net Profit of the company has increased at a CAGR of 147.34% to Rs. 13.14 crore in FY 07 from Rs. 0.35 crore in FY 03. The Net Profit for 6 months ended September 07 stands at Rs. 10.44 crore.
* The inventory turnover ratio has improved and stood at 13.20 times in March 07 from 7.41 times in March 06.
* Debt to Equity ratio has improved and stood at 0.1 times in FY 07 from 0.5 times in FY 05.
* The Interest Coverage ratio of the company has improved to 6.3 times in FY March 07 from 3.4 times in FY March 06. For 6 months ended September 07, it stands at 4.9 times.

Weakness:

* SEPC has negative cash flow from operating activities since FY 05. For FY 07, the losses were to the tune of Rs. 29.05 crore and for 6 months ended Sept 07, it amounted to Rs. 12.06 crore respectively. The operating expense of the company is on the rise due to continued development and expansion of company’s business at a high pace.
* The average collection period has increased to 123 days in FY 07 from 103 days in FY 06.

Valuations:

* RONW of the company has improved and stood at 7.71% in March 07 from 4.72% in March 06 due to increase in PAT as well as addition in revenue from WTG business.
* The OPM of the company has improved to 9.2% in FY 07 from 8.4% in FY 05. For 6 months ended September 07, it comes out to 9.8%.
* Debtors turnover ratio for March 07 stood at 2.99 times as compared to 3.56 times in March 06.
* The book value per share as on March 07 comes out to Rs. 84.18.
* EPS as on March 07 comes out to Rs.6.49. Post issue EPS based on annualized PAT for FY 08 stands at Rs. 4.87.
* The shares are being offered in the price band of Rs. 290/- to Rs. 330/. Post issue the P/E Ratio of the company comes out to 59.56 at the lower price band and 67.77 at the upper price band based on annualized PAT for FY 08

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